WIN AGAINST CASH OFFERS IN DC

You can win against cash offers on homes for sale in DC--but should you?

One solution to winning against cash offers in the District is to throw an insane amount of money at it. But that’s rarely the best option. In this article, we’ll outline some of the ways–and there are more, depending on your situation–that DC home buyers can compete and truly come out ahead.

Why 'Cash Is King'

Here are some of the reasons DC home sellers prefer cash offers to those with financing:

  • Worry free financing: A pre-qualification is not a guarantee of lendability. For cash sales with proof of funds requirement, the seller is assured to the best possible extent that the transaction will not fall out of escrow for lack of funding. This is huge, because properties that re-list after a canceled transaction often ultimately sell for less than they would have had another competing offer been selected. No one wants to have multiple escalated offers only to end up with nothing.
  • Shorter transaction cycle: The turnaround time for cash transactions is much shorter due to there not being a necessity for loan processing time. Cash transactions can close as quickly as the title process can be completed and, if it is a condo or coop purchase, the required rescission periods expire.
  • No appraisal requirement. This is a big one. Sellers don't have to worry about low appraisal against escalated offer price. The cash buyer can opt not to have an appraisal, whereas a lender requires one most of the time. Even if a cash buyer includes an appraisal provision, the seller is confident they have the resources to make up the difference between a low appraisal and the offer price.
  • Fewer contingencies on cash offers. Because there is no danger of a loan denial, cash buyers can make an offer as 'clean' (sans contingencies) as they wish.
  • No underwriting conditions. If a house needs significant/structural repairs, a condo has a high percentage of commercial SF or investor ratio/ other restrictions that affect lendability, for instance, a loan can be denied but a cash buyer can sail on with the transaction.
Some Of The Approaches We Take To Give Our Buyers An Advantage Against Competition:
Be Solutions Driven
  • Full Assault: Extremely aggressive offer price and 100% clean offer. This happens in highly competitive situations where the buyer absolutely must have the property in question, either because it is uniquely suited to their needs, an above-average investment, or because the buyer is simply emotionally committed to it (we try to discourage this). The buyer will 'overpay' for the property, usually with the understanding that they will retain it well past the breakeven point to cover future listing and selling expenses, and achieve a profit. We recommend a pre-offer inspection, structural engineer's report and possibly a pre-offer appraisal, if time allows. This is an option for those with extremely solid financial resources who are supremely confident their loan will be approved. Not for the faint of heart or those with concerns about their financial resources.
  • Aggressive But Measured: Offer over list price commensurate with value of the property, both documented (past) and perceived (projected), with a modified appraisal contingency, otherwise 'clean,' with added incentives that matter to the seller, such as closing cost coverage (often more valuable in part to seller than higher offer price because as the price rises, so do seller costs like commission, transfer tax, etc.), or a free rent-back. We recommend a pre-offer inspection, structural engineer's report and possibly a pre-offer appraisal, if time allows. This is a popular option for those with solid financial resources who can make up a portion of a low appraisal and are highly confident their loan will be approved. Buyers may lose a few before having a success.
  • Avoiding competitive Situations Altogether: See below

These approaches carry their own sets of provisions and risks, so we evaluate them carefully with our clients and tailor their use to that client’s position and goals.

If Your Resources Are Limited:

What about first-time home buyers who may not possess the same resources?

Recognize-Opportunity
  • Drop your price point: Be the big fish in a smaller pond.
  • Increase your price point: Are you in a "tweener" price range? Try competing at a slightly higher price point that will be on the lower end of the next tier. You may find there's a lot less competition there.
  • 25%+ downpayment: A larger downpayment gives sellers more confidence about your financing because it shows you have resources, your payment will be lower and your financing has a better chance of being approved. It also may trigger an appraisal waiver by your lender's automated system.

  • Waived appraisals: They take much of the concern about financed offers away for sellers. With a higher downpayment, your lender may waive the appraisal requirement. *This is very dangerous if you don't have the resources to make up the difference on a low appraisal if your lender hasn't waived the requirement.

  • Eliminate as many contingencies as is safe: What's 'safe?' We evaluate that with you, and it's per property. Almost always includes a pre-offer inspection, so don't stall on that because time for this is always extremely short and last-minute inspections are difficult to get.

  • Know when to stop on escalation: Don't put yourself in a position where you could be 'upside down' on home value for years just to snag a property you like. Think of it as an investment first, a home second. Sometimes 'winning' is walking. There will be another house for you most of the time.

  • Know when to escalate as far as you can: Sometimes, in certain circumstances and price points, there really won't be another house or the next house (and every one after that) will be even more expensive.
  • Stagnant properties: Stop competing for the homes everyone else is bidding on and shop around that house. Sometimes there's a perfectly good property in the same neighborhood or building as the shiny object everyone else is bidding on. It may have listed at an inopportune time, not be presented well, or lack one component others think they need but you don't. That's the property to focus on. As it racks up days on market, the price is more negotiable. Here's your chance to get a 'deal' in this seller's market!

  • Find Fixers: Many DC buyers are looking for turnkey properties and flippers are looking for properties they can buy for a song because they're in bad shape. Find something in-between: a structurally sound home that needs mostly cosmetic updating and relatively straightforward repairs/replacements such as HVAC, flooring, kitchen & bath makeovers, landscaping, new deck, and/or new roof. If it's in the right location, you'll build equity faster than the buyer who bought the highly-escalated property you yearned for and you'll live in the same neighborhood. That's winning!

  • Private Exclusive inventory: We saved the best for last. Guess what? There's a huge pool of inventory the rest of the public doesn't know about and hedge funds don’t access! Compass has a massive back-channel of PE and non-public 'coming soon' listings! We can make that available to you with a click of a button and tailor it to the neighborhoods and property types you want. Shop off-market, find your home, make a solid offer to take it off the market, and you've come out ahead without participating in a bidding war. The ultimate win!

Again, there are nuances to all these approaches and these are just some of the ways to win in a competitive situation in the DC market. We review strategies with our clients on each property under offer consideration because there is no ‘one size fits all’ solution and each buyer’s circumstances and tolerance for risk are slightly different.

Let’s sit down and discuss your needs!


Expertise is one call away.

The Isaacs Team LLC

Realtors

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